“Companies are mutating all the time, shutting down departments that aren’t financially viable and discontinuing products that don’t sell. But when a brand is bought out of bankruptcy… it becomes eminently clear what portions of its business still have value, because that’s all that’s allowed to live on.” This quote, which is from an article on the relaunch the clothing company American Apparel, is a very succinct summary of a typical Chapter 11 business bankruptcy.
We would know, because at Hanson & Payne, LLC, we help Milwaukee area businesses retool and relaunch just as frequently as we help them shut down, and it always becomes clear as we work with our clients what portions of their business still hold value.
For many businesses, the real value lies in the business’s brand and reputation. This is what American Apparel discovered after going bankrupt twice. By studying consumer buying habits, they learned that regular people bought their clothes because they were a “cool” brand, not because all of their products were manufactured in America. Wholesalers, however, were buying because American Apparel’s products had that coveted “Made in the USA” label that sports teams and local fire departments want when they order shirts with their logo on the front.
We help business owners figure out what portions of their business hold the most value, and how to move forward with that information. Oftentimes this occurs in the middle of a Chapter 11 bankruptcy proceeding.
When most people hear the word bankruptcy, they conjure up images of a Chapter 7 bankruptcy, where a business’s (or individual’s) assets are liquidated to pay off creditors, and the business is shut down. During a Chapter 11 bankruptcy, however, the business stays open and operates pretty much as normal. Bits and pieces may be shut down or sold off though, and it is through the process of going through all of a business’s assets and figuring out what they are valued at by others as stand-alone entities that many businesses find their way forward.
During its bankruptcy, American Apparel realized it needed to revamp its manufacturing to offer different price points. And that it needed to cut ties with a former leader to generated more lawsuits than business. It closed all its stores, including the ones in Milwaukee and Madison, but it plans to open a new one in L.A. by the end of the year. It is charting a new and radically different path forward. One that only opened up after the company went into bankruptcy for a second time, and was more thoughtful about its future.
It is our goal to help Wisconsin businesses tell a similar story of redemption and rebirth. Our country’s bankruptcy laws exist in order to give people and businesses a second (or third) chance. Business owners should not hesitate to take full advantage of them. Especially in this day and age where monumental changes in consumer preference and the market seem to happen over night, bankruptcy allows one to be nimble and to focus on creating value for the future.